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Network positions: Strategic Alliance in the Tobacco Industry in Nicaragua | Ciencias Económicas | Pág 17-26 Network positions: Strategic Alliance in the Tobacco Industry in Nicaragua Reynaldo Gómez García1 1 Magister Scientiae en Economía Política en la Universidad Nacional de Costa Rica. Profesor Titular de la UNAN-Managua / FAREM-Estelí. E-mail: [email protected] ABSTRACT This paper is based on the theory of the organizations as a network. I study the strategic alliances in the tobacco industry in Nicaragua. The study is more theoretical than empirical. I work with approaches in this field and any data of Central Bank of Nicaragua. My objective is to demonstrate that the firms in the tobacco industry are prone to enter in strategic alliances. Keywords: Network Positions, Strategic Alliances, crowding positions, Tobacco Industry. RESUMEN Este artículo está basado en la teoría de las organizaciones como una red. Estudio la alianza estratégica en la industria del tabaco en Nicaragua. El estudio es más teórico que empírico. Trabajo con los enfoques existentes en la temática y algunas estadísticas del Banco Central de Nicaragua. El objetivo es demostrar que las empresas en la industria del tabaco están propensas a entrar en una alianza estratégica. Palabras clave: Posiciones de redes, alianzas estratégicas, posiciones de hacinamiento, industria del tabaco. 17 Revista Científica de FAREM-Estelí. Medio ambiente, tecnología y desarrollo humano. Nº 10 | Año 3 | Abril-Junio 2014. INTRODUCTION FRAMEWORK Strategic alliances have become a topic of considerable Network form organization interest to scholars of organizations, because alliances are now prevalent in many industries, and they Prior to the middle 1970s, economists had largely inherently challenge the notion that organization are regarded the organization as a black box that is to discretely bounded entities, researchers have labored be understood as a production function converting to understand the antecedent conditions that lead to inputs to outputs. In the middle 1970s and early interfirm collaboration (Stuart, 1998). In the tobacco 1980s, economists started to look inside the black industry in Nicaragua has been a strategy alliance box, and two perspectives in particular became quite since the late 90´s. prominent: principal agent theory and transaction cost economics. At least when they first emerged, each Two central questions lead this paper. The first one, perspective was grounded in a dichotomous view of what motivates tobacco companies to form strategic economic organization: markets and hierarchies. alliances? The characteristics of organizations, such as their size or financial condition, predispose firms From a purely structural perspective, the trichotomy toward or against engaging in certain actions. In among market, hierarchy, and network forms of empirical work a variety of firms attributes, including organization are a false one. Markets and hierarchies size, age, scope, and resource endowments affect are simply two pure types of organization that can the propensity to enter into alliances. The second be represented with the basic network. Each market question, how does the tobacco company position in actor is a node that lacks any ties to the other actors the industry affect its propensity to enter in strategic or nodes. A hierarchy is a centralized network in which alliances? Alliances are driven in large part by the the vast majority of ties flow to or from one particular opportunities tied to a firm’s position in its external node. In effect, from a structural perspective, every environment. The firms will enter alliances only form of organization is a network, and market and when they possess exchange partners with whom hierarchy are simply two manifestations of the broader they forecast a high probability of a strategically or type. financially beneficial collaboration, and the availability of such partners is very often the binding constraint on A network form of organization as any collection of alliance formations. actors (N≥2) that pursue repeated, enduring exchange relations with one another and, at the same time, lack Although the tobacco industry in Nicaragua is very a legitimate organizational authority to arbitrate and important, there are no papers that address the issue resolve disputes that may arise during the exchange of strategic alliances. My hypothesis is that crowding (Podolny and Page, 1998). The network form is a form positions affects the industry´s propensity to enter into of governance. strategic alliance. From the perspective, I point out a case that led to the formation of alliances in the last This definition of a network form of organization decade. includes a wide array of joint ventures, strategic alliances, business groups, franchises, research consortia, relational contracts, and outsourcing agreements. This definition excludes most pure market arrangements such as short term contracts or 18 Network positions: Strategic Alliance in the Tobacco Industry in Nicaragua | Ciencias Económicas | Pág 17-26 spot market transactions, and it excludes employment quality. By fostering greater communication than relations. the market does, network forms of organization facilitate greater coordination in the face of The social network approach views organizations in changes whose significance cannot be completely society as a system of objects (e.g. people, groups, conveyed or understood through price signals. organizations) joined by a variety of relationships. Not • Others benefits. The resource dependence all pairs of objects are directly joined, and some are can alleviate sources of external constraint or joined by multiple relationships. Network analysis is uncertainty by strengthening their relationship with concerned with the structure and patterning of these the particular sources of dependence and small relationships and seeks to identify both their causes firm networks provide individuals with greater and consequences (Tichy et al, 1979). autonomy, lead to less inequality in the distribution of wealth, and foster a greater sense of community. Functions of network organization Strategic interdependence The network forms allow participating firms to learn new skills or acquire knowledge, gain legitimacy, The strategic interdependence between organizations improve economic performance, and manage resource describes a situation in which one organization dependencies. It considers each of these proposed has resources or capabilities beneficial to but not advantages separately: possessed by the other. Many organizations face such interdependence, because of their need for resources- • Learning. Network forms of organization foster not only money, but also resources such as specialized learning because they preserve greater diversity skills, access to particular kinds of markets, and the of search routines than hierarchies and they like (Gulati quoiting to Aiken and Hage, 1968). convey richer, more complex information than the market. First, they can encourage learning A strategic interdependence perspective on alliance by promoting the rapid transfer of self-contained formation suggests that firms will ally with those with pieces of information. The network ties are whom they share the greatest interdependence. This conduits or channels. Second, may foster learning proposition has been explored at numerous levels by encouraging novel syntheses of information of analysis. The role of resource contingencies is that are qualitatively distinct from the information an important predictor of a firm’s proclivity to enter that previously resided within the distinct nodes. alliances. The network becomes the locus of innovation. • Legitimation and status. If an actor partner Alliance formation and social structure in a network form of organization possesses considerable legitimacy or status, then the actor An alliance is any voluntarily initiated interfirm may derive legitimacy or status through the cooperative agreement that involves exchange affiliation. This has a number of positive economic sharing, or codevelopment, and it can include benefits for the actor, ranging from survival to contributions by partners of capital, technology, or organizational growth to profitability. firm-specific assets (Gulati, 1995). The social network • Economics benefits. In elaborating functions of alliances is dynamic and evolves as new alliances by the network form of organization is important are formed. A firm’s position in the network is thus the the direct economic benefits in terms of costs and result of both its own past alliances and those of other 19 Revista Científica de FAREM-Estelí. Medio ambiente, tecnología y desarrollo humano. Nº 10 | Año 3 | Abril-Junio 2014. firms in the network. Since new ties alter the very as drivers of alliances, but ignores factors that may social network that moderates their formation, there is lead to the availability of alliance opportunities in the an active interplay between action and structure in this first place. framework that is best observed over time. The social structural model in figure 2 points to the Discovering new alliance opportunities and finding an important role of social networks in guiding firms’ appropriate partner that desires an alliance requires actions. The social network of prior alliances is an very good access to market information. Firms need to active network of information exchange in which firms know about the reliability of potential partners as well. learn about the

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